401.x errors on IIS: Authentication Required

Quick Tip: Is your site suddenly requesting a user name and password?

Most likely this is triggered by insufficient file system permissions. The error logs at
%SYSTEMROOT%\System32\LogFiles\W3SVC###\*.log will narrow down your search and give the substatus and Win32
error codes for each HTTP 401.

David Wang has a great write up about this on his blog. Check it out for more details.